Carbon 2009 Emission trading coming home - UNEP Finance Initiative

Carbon 2009
surpluses may thus have been
sold or swapped, with options
attached in case carbon prices
were to surge. A more general
reason for this increase in options
trading may simply be increased
market maturation, spurred in
part by financial institutions that
facilitate EUA-CER swapping.
Lower emissions also mean less
of a need to borrow EUAs from a
future year, but increased market
maturity may counteract this
tendency as companies seek to
make the most of their allocated
allowances.
While there is no explicit
mechanism for borrowing EUAs
from future years, installations
are in practice able to engage
in borrowing from next year’s
allocation in the EU ETS. This
is because the free portion of
EUAs for a given compliance year
needs to be handed out by 28
February of that year, whereas
allowances for compliance with
the previous year are only due to
be surrendered by 30 April.
Increased options
trading in carbon
markets
Interestingly, the number of
respondents reporting that their
companies permit borrowing
from the future, either with or
without a limit, is somewhat
down on last year, from 43 to
37 percent (see Figure 3.9).
However, the difference is
not very large, notably if we
exclude the substantial portion
of respondents that do not know
their company policy on this
question. Respondents from the
pulp and paper sector display
the highest affirmative rate -- 63
percent.
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3.4 CDM
In 2009, the economic downturn
is likely to impact investments
considerably in the project
markets – the CDM and JI. In
addition, post-2012 uncertainty
and declining emissions in many
countries will have an impact on
the demand for CER and ERUs. To
gauge the effect of the economic
downturn on the CDM market,
we asked respondents whether
their companies had modified
their purchasing or investments
as a direct consequence of the
slowdown. We also asked a
more general question about
planned company involvement
in the CER market in 2009.
Figure 3.10 displays the answers
to the first question. Here, 44
percent of the respondents – and
a full 60 percent of those with
substantive replies (excluding
“not applicable”) reported that
their companies had scaled
down, delayed or cancelled
carbon credit project investments.
The corresponding number for
carbon credit purchases was 53
percent of substantive answers.
As financing dries up, and prices
for primary and secondary CERs
decline, these responses are in
line with what one can expect
in the current market situation.
As noted above, we forecast a
significant drop in CDM (and JI)
investments, with a pCER volume
down 45 percent on 2008, to 300
Mt in 2009. Low prices both in the
primary and secondary markets
reduce the incentives to invest;
post-2012 uncertainty and the
fact that the end of the first Kyoto
commitment period is less than
four years away also contribute to
a lack of interest in new projects.
Nevertheless, 27 percent and
23 percent, respectively, answer
that the financial and economic
downturn has not influenced their
carbon credit purchases or carbon
credit project investments. Some
Figure 3.10: Cancelling credit?
“To what extent - if at all - has the financial and economic downturn
influenced your operations in the following areas?” Companies trading
EUAs/CERs/ERUs/RGAs. N=1219.
cancelled
delayed
scaled down
not influenced at all
increased
not applicable
Source: Point Carbon
0% 5% 10% 15% 20% 25% 30%
Carbon credit project investments
Carbon credit purchases
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